Practically, the FM can only do that if they are 100% sure oil is not going to rise any further. And it won't quit rising until Ben raises the 2% rate upwards following the footsteps of ECB. Or we decouple with USD oil payment by trading with a ME country or Russia in exportable stuff in INR, avoiding USD altogether. I strongly suspect RPL's export oriented Jamnagar refinery is tied to lessening this pain. Good luck to RPL and may they beat other such projects coming online.

I am willing to bet that there is a sudden rise in INR vs USD when oil levels reach 110-120 range. And probably INR-USD will fluctuate between 38-45, with 45 more realistic right now, and then approaching 38.

He seems to be well briefed. E.g. consider these sentences in the story: SP General Secretary Amar Singh, a key intermediary in negotiating support for the government, told Reuters in an interview on Tuesday it was the finance minister's prerogative to fix the exchange rate, and not that of the central bank.. These sentences are legally accurate and reflect either Amar Singh or an advisor having carefully read the relevant legislation. Most laymen tend to jump to the conclusion that setting the exchange rate is legally RBI's job.

So how come Chidambaram called, few years ago, on RBI to think about free-float of rupee and RBI's committee, as expected, put a stop to it (to preserve jobs, may be). Chidambaram wasn't serious, was he?

ntCan you please point out where in legistlation does it say that it is fm's prerogative to set inflation target.I always thought that other than New Zealand where government and central bank sign a formal agreement setting out the objectives of policy the central bank's accountability is less formalised.If fm has such powers then y he aint taking advantage(political and operational) of it?

1. Look back at the INR appreciation of 2007. Did it impact on exports measured in USD? Not particularly. (Trace back in this blog for these facts).

2. The deeper problem is that a country does not control its real rate. RBI tried to subsidise exporters by purchasing dollars. This gave us inflation, and through that the real rate has changed anyway. The best strategy is to remove distortions such as capital controls, excessive reserves, MSS, etc. and refocus monetary policy onto smoothing the business cycle via stabilisation of inflation.

My understanding is that source of infaltion in India is supply-side driven especially the food prices sky-rocketing in the recent times. We need to improve our agriculture productivity. The supply chain in agriculture is woefully inadequate, we need a big green revolution. On the Oil Prices, we can't do much, there are too many idiosyncracies driving the oil prices like disruptions in crude production in Nigeria, Venezuela, political tensions in the Middle East etc.

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